Institutional investors release governance guidelines for NZ listed companies
A group of New Zealand institutional investors with significant investments in New Zealand listed companies — around 15 per cent of the equity market — has issued guidelines on corporate governance it wishes to see investee companies adopt. Covering key areas such as director independence, tenure and board renewal; remuneration (both executive and non-executive); reporting and disclosure, the guidelines also recommend new practices such as the right of shareholders to nominate directors; voting on a poll rather than a show of hands; and shareholder approval of share issues above five per cent of total shares.
Coming together as the New Zealand Corporate Governance Forum, the ACC Steering Group, AMP Capital, ANZ Investments, Devon Funds Management, Forté Funds Management, Government Superannuation Fund, Harbour Asset Management, JB Were, JMIS, Milford Asset Management, Mint Asset Management, National Provident Fund, Nikko Asset Management and Sovereign and Salt Funds Management developed the governance practices they wish to see adopted by their investee companies — they are intended to operate in addition to the Financial Market Authority’s (FMA) guidelines. They extend the FMA’s guidelines, taking into account more detailed guidance from guidelines issues by the International Corporate Governance Network (ICGN), the Australian Council of Superannuation Investors (ACSI) and the UK’s Financial Reporting Council (FRC). The new guidelines are supported by the FMA, NZX and the Institute of Directors.
The Forum has taken the ‘if not, why not’ approach, stating that it recognises that companies need the freedom to structure their corporate governance according to individual circumstances, but that this flexibility is tempered by the expectation that boards will explain why a particular guideline is not being followed. The investors confirm they expect to see such disclosures in the annual corporate governance report.
The guidelines concentrate on core governance issues, such as board composition and performance, ethical behaviour, reporting and disclosure, risk management and remuneration, and they also illustrate other areas where shareholders want their views taken on board. In particular, the guidelines want shareholder nominations for board candidates to be put before the nomination committee for consideration and for non-executive directors who have served longer than nine years to be subject to annual re-election.
And while institutional investors want boards to have the flexibility to raise capital efficiently, they are of the view that companies should not be able to materially dilute holdings without shareholder approval — the guidelines recommend that share issues above five per cent of total shares should require shareholder approval.
The guidelines also recommend that boards issue an integrated report, and that disclosures should:
a) be linked to the company’s business model
b) be genuinely informative and include forward-looking elements where this will enhance understanding
c) describe the company’s strategy, and associated risks and opportunities, and explain the board’s role in assessing and overseeing strategy and the management of risks and opportunities
d) be accessible and appropriately integrated with other information that enables shareholders to obtain a picture of the whole company
e) use key performance indicators that are linked to strategy and facilitate comparisons
f) use objective metrics where they apply and evidence-based estimates where they do not.
The guidelines also firmly come out in favour of voting on a poll on all resolutions rather than a show of hands.
The guidelines can be found here.